How Much Do Private Equity Funds Benefit From Debt-related Tax Shields?

摘要: In 2008 the German government enacted a measure designed to curb excessive leverage in LBOs by limiting tax-deductible interest 30% of EBITDA. And U.S., legislators are currently reviewing several regulatory measures, including limits on interest, that intended reduce portfolio companies U.S. LBO funds. In their recent study 56 transacted after tax law change 2008, authors analyze importance debt-related savings and economic consequences reduction for PE business model. The begins confirming debt shields material component purchase prices, contributing as much 20% average estimated total enterprise value. At same time, however, finds effects fund returns taxdeductibility payments likely be modest, part because large portion value from expected is effectively paid upfront private equity firm form higher prices. Moreover, do not expect see funds model response this taxdeductibility. Based findings, neither significant decline nor notable pricing deals. As finance scholars have suggested, there benefits associated with use nothing shield provided deductibility interest. authors' results provide yet another piece evidence suggesting taxes at most second-order effect corporate financing decisions�and gains come mainly improvements operating performance.